Charging structure post RDR
There has been a lot of discussion around the implementation of the Retail Distribution Review (RDR) and the Platform Paper and their effect on fund charges. Our current understanding of the proposals and their effect on our charging structures are explained below.
The RDR, which was implemented in January 2013, will not directly affect charges on our platform. This is primarily because execution only services like ours are outside the current remit of the RDR. It will mean that funds and platforms will begin to offer an Advisor Fee based charging structure. In essence this means that the normal annual management charge (AMC) of 1.5% will be broken down into its integral parts of a fund manager charge (0.75%) a platform charge (0.25%) and trail commission (0.5%).
This Trail commission element will only apply to existing (legacy) assets after January 2013, and so new assets or investments will be under a new charging structure whereby the IFA and client negotiate an on-going fee for advice. Fidelity FundsNetwork announced that its new charging structure will be in line with its current model (0.75%, 0.25%, plus an advisor charge that your IFA will negotiate with you). An annual account fee of £45 will also apply from 2013 but not for Cavendish Online clients. Cofunds, in contrast, has increased their charging structure by implementing a platform charge of 0.29% for the majority of clients, along with a £40 annual fee.
In summary our charges will continue as:
- No initial charge,
- No switching charge,
- 100% trail commission rebates
- No upfront or annual fees.
Cavendish Online earns a small part of the platform charge directly from FundsNetwork.
One side effect of this new charging structure may be that, whereas clients currently pay a 1.5% AMC, of which 0.5% is rebated to them, in future they may be able to simply have a 1% AMC. We will keep clients up to date with progress on this issue and whether they are able to move from one option to the other.
The effect of the Platform Paper, which is expected to be implemented in 2014, will be to outlaw payments from fund groups and platforms to advisers and clients outside the above charging structures (so to remove hidden kick-backs). We don’t think this will affect our current charging structures, and even if the details change we are confident that we can maintain our current position as the cheapest route to invest in funds.
There has also been a change to the Cofunds pricing model but this will not affect Cavendish Online customers until the end of 2013. The change means that investors will be charged a £40 annual fee and a platform fee of 0.29% (compared to FundsNetwork’s £45 and 0.25% platform charge) for assets up to £100,000 or 0.26% for assets between £100,000 and £250,000 after which further discounts are given.
If you are considering moving from Cofunds to the Cavendish Online FundSupermarket you can do so by sending us the relevant forms available on our website. The re-registration facility to move your investments to the Cavendish Online FundSupermarket from Cofunds and other platforms is currently only available for OEICs. To move your ISA you will need to complete transfer forms. A transfer is where the existing fund manager encashes your funds and sends the cash to the Cavendish Online FundSupermarket for re-investment in your new chosen funds. The downside to this is that you will be “out of the market” for part of the transfer process.